Tag: Form 5471

By Anthony Diosdi Introduction Schedule E of Form 5471 is used to report taxes paid or accrued by a foreign corporation for which a foreign tax credit is allowed and taxes for which a credit may not be taken. Schedule E-1 of Form 5471 tracks the earnings and profits (“E&P”) of a controlled foreign corporation (“CFC”). In most cases, special ordering rules under Section 959 of the Internal Revenue Code apply in determining how E&P is reported on Schedule J. Shortly after the Tax Cuts and Jobs Act was enacted in 2017, the Internal Revenue Service (“IRS”) and the Department of Treasury (“Treasury”) announced they will withdraw the proposed regulations for Internal Revenue Code Section 959. As a result of these changes, the IRS dramatically changed Schedule E and E-1…

By Anthony Diosdi IntroductionSchedule P of Form 5471 is used to report previously taxed earnings and profits (“PTEP”) of a U.S. shareholder of a controlled foreign corporation (“CFC”). The term PTEP refers to earnings and profits (“E&P”) of a foreign corporation. This article will dive into each column and line of the new 2020 Form 5471 Schedule P. We will also attempt to provide guidance as to how to prepare this incredibly complicated return. Who Must Complete the Form 5471 Schedule P?Anyone preparing a Form 5471 knows that the return consists of many schedules. Schedule P is just one schedule of the Form 5471. Whether or not a shareholder of a CFC is required to complete Schedule P depends on what category of filer he or she can be classified…

By Anthony Diosdi Schedule H is used to report a foreign corporation’s current earnings and profits (“E&P”) for US tax purposes to the Internal Revenue Service (“IRS”). Recently, Schedule H was revised. This article is designed to supplement the IRS instructions to the Form 5471.Who Must Complete Schedule HAnyone preparing a Form 5471 knows that the return consists of many schedules. Schedule J is just one schedule of the Form 5471. Whether or not a CFC shareholder is required to complete Schedule H depends on what category of filer he or she can be classified as. For purposes of Form 5471, CFC shareholders are broken down by the following categories:Category 1- US persons who are officers, directors or ten percent or greater shareholders in a foreign personal holding company. Category…

By Anthony Diosdi IntroductionSchedule P of Form 5471 is used to report PTEP of the U.S. shareholder of a controlled foreign currency (“CFC”) in the CFC’s functional currency. The term PTEP refers to earnings and profits (“E&P”) of a foreign corporation. Schedule P like Schedule J and Schedule E has given tax practitioners fits the last two tax seasons. Much of this confusion is the result of the Section 959 ordering and basketing rules. Things are not likely to improve next tax season because international tax practitioners will also need to understand the new extraordinary disposition and extraordinary reduction rules to properly complete Schedule P. On August 24, 2020, the IRS issued a draft for Schedule P (without any instructions) for the 2020 tax year. Although the 2020 Schedule P…

  By Anthony Diosdi IntroductionSchedule E of Form 5471 is used to report taxes paid or accrued by a foreign corporation for which a foreign tax credit is allowed and taxes for which a credit may not be taken. Like Schedule J, Schedule E (mostly because of Schedule E-1) has given tax practitioners fits the last two tax seasons. Much of this confusion is the result of the Section 959 ordering and basketing rules. Things are not likely to improve next tax season. On August 25, 2020, the IRS issued a draft for Schedule E (without any instructions) for the 2020 tax year. Although the 2020 Schedule E is only in “draft” format, we do not anticipate many if any changes to the form before next tax season.The IRS has…

By Anthony Diosdi Schedule J of Form 5471 tracks the earnings and profits (“E&P”) of a controlled foreign corporation (“CFC”). Schedule J has given tax practitioners fits the last two tax seasons. The confusion started when the Internal Revenue Service (“IRS”) and the Department of Treasury announced they will withdraw the proposed regulations for Internal Revenue Code Section 959 and the following new columns were added to Schedule J:1) Post-2017 E&P Not Previously Taxed (post-2017 Section 959(c)(3) balance.2) Hovering Deficit and Deduction for Suspended Taxes.3) PTI from Section 965(a) Inclusion (Section 959(c)(1)(A)).4) PTI from Section 965(b)(4)(A) (Section 959(c)(1)(A)).5) PTI from Section 951A Inclusion (Section 959(c)(1)(A)).6) PTI from Section 965(a) Inclusion (Section 959(c)(2)).7) PTI from Section 965(b)(4)(A) (Section 959(c)(2)), and8) PTI from Section 965(b)(4)(A) (Section 959(c)(2)), and9) PTI from Section 951A…

By Anthony Diosdi Schedule M is designed to measure intercompany payments. Schedule M requires the majority U.S. owner to provide information on transactions between the CFC and its shareholders or other related persons. This is the eighth of a series of articles designed to provide a basic overview of the Internal Revenue Service (“IRS”) Form 5471. This article is designed to supplement the IRS’ instructions to Schedule M of IRS Form 5471. This article will go column by column and line by line through the attachment to Form 5471.Who Must Complete Schedule MForm 5471 and appropriate accompanying schedules must be completed and filed by the following categories of persons:Category 1 FilerU.S. persons who are officers, directors or ten percent or greater shareholders in a CFC. Category 1 includes U.S. shareholders…

By Anthony Diosdi U.S. persons with certain interests in controlled foreign corporations (“CFCs”) must disclose their interests on Form 5471. Sometimes, CFCs temporarily stop conducting business and as a result, the CFC’s U.S. shareholders assume that it is not necessary to file an IRS Form 5471. This is an incorrect assumption and can result in serious penalty assessments by the IRS. Even if a CFC is dormant, the U.S. shareholders must still file a Form 5471. The good news is shareholders of a dormant CFC can qualify for minimal Form 5471 reporting requirements. Revenue Procedure 92-70 discusses the circumstances when a CFC shareholder qualifies for minimal Form 5471 reporting requirements.Per Revenue Procedure 92-70, there are eight conditions that must be met in order for a foreign corporation to be considered…

By Anthony Diosdi Schedule P is used to report the Previously Taxed Earnings and Profits (“PTEP”) of the U.S. shareholder of a controlled foreign corporation (“CFC”) in the CFC’s functional currency (Part I) and in U.S. dollars (Part II). This schedule is also used to report the PTEP of the U.S. shareholder of a specified foreign corporation (“SFC”) that is only treated as a CFC for limited purposes under Internal Revenue Code Section 965(e)(2). This is the seventh of a series of articles designed to provide a basic overview of the Internal Revenue Service (“IRS”) Form 5471. This article is designed to supplement the IRS’ instructions to Schedule P of IRS Form 5471. This article will go column by column and line by line through the attachment to Form 5471.Who…